Financial literacy lost in translation

[CHIMO]

In the past few weeks, I've been writing about the idea of boosting Canadians' financial literacy. The federal government wants to coordinate educational efforts by schools, non-profit groups and corporations. But some people think financial literacy is a waste of time and money – and possibly counterproductive.

Investor education programs can be used to shift blame from sophisticated sellers of financial products to the consumer, says Edward Waitzer, a lawyer, professor and former chairman of the Ontario Securities Commission.

"Of equal concern is the dedication of scarce resources to such financial literacy efforts to maintain the appearance of taking steps to remedy highly publicized cases of investor abuse," he said. "Unfortunately, there are no easy fixes."

Financial education doesn't work, says Lauren Willis, associate professor at Loyola Law School in Los Angeles.

http://www.thestar.com/business/columnist/article/671962#

[exboyfil]

1. I think that, unless you pass a financial literacy test,

the only thing you should be allowed to invest your 401k in is Treasury Intermediate Term and Long Term bond funds (Vanguard has two good funds). The next step would be rebalancing your portfolio each year (50% stocks and 50% bonds) for example (adjusted for age - I think a simple method would be to hold your age as your percentage of bonds). Such a portfolio (50%/50%) would have done well for you if you had invested a fixed amount in 1993 (4-5% over inflation even through two bear cycles - one of which still going on). I am working out the dollar cost average version of such a portfolio now (as part of a paper I am doing).

Another thing to consider would be to put a portion of your money in Intermediate and Long Term Treasury Inflation Protected Securities (back in November was a great time to invest in these as they were yielding 3% over inflation). Unfortunately most conventional 401k plans don't have Vanguard's TIP fund available (I would prefer to be able to directly access the Treasuries inside a 401k, but that is not an open even with a "brokerage" account).

A course like Dave Ramsey's should be taught to every High School student. It would not take long, and be more beneficial than a lot of the stuff which is taught. Dave Ramsey hammers the areas in which most people get into trouble (credit cards and home mortgages). Of course he doesn't have a solution for accessing health care insurance if you have a low paying job without it. That situation can kill any financial plan quickly. I think we need a health care and industrial policy overall in those cases - those situations cannot be solved by individuals.

Most folks don't need complex investment vehicles - they need simple index funds with low management fees which they should keep a eye on. A diversified investor with a simple rebalancing method would have done well even through last year's crash. Understand what you are investing in and don't keep all your eggs in one basket. I still can't believe that folks gave most of their net worth to guys like Madoff to manage.

I don't want the government limiting my investment choices. I still want the opportunity to access the capital market with a portion of my retirement savings. It has worked out very well for me so far.

[truedelphi]

2. Those are very good points. Only thing you are not mentioning are the very

Basics -
1) Buy when the market is low, and sell when the market is high
2) Don't put the chickens in one basket, diversify
3) Don't count your eggs until they have hatched
4) What ever goes up must come down
Corollary A of # 4 - Doesn't matter if experts say "Hey it is a new economy and this is one market that will always go up and never go down"
5) If it sounds too good to be true, it probably is!

Anyway that is my two cents, from what mistakes I have seen people make. I even had a friend who lost millions because he kept all the money from a sale of an intellectual property in the stock of the purchasing company and when the dot com bubble went down, so did all that stock.

[AdHocSolver]

3. Just show them Mel Brooks movie "The Producers" to teach them how a Ponzi scheme works.

Then teach them the old adage: "Trust, but verify".